Consumers warned about risk of forex, online day trading

Banks offer platforms where their clients can deposit money and trade shares daily, which may reinforce the idea that making money this way is ‘easy

Consumers and investors have been warned to only undertake foreign exchange trading and other forms of online day trading after seriously considering the risks involved.

The Office of the Ombud for Financial Services Providers (Fais) has highlighted that these types of trading are generally regarded as high-risk investments and consumers must ask themselves whether they have the expertise required and are prepared to accept the risk of losing all the funds invested.

This follows a recent case in which the complainant received a call from a representative of an online trading platform inviting him to subscribe to it.

The complainant believed he could make substantial profits from foreign exchange trading and invested about R725 000 over several months.

At the end of the period, he had lost most of his capital and only received a single withdrawal of R3 959.35.

When the complainant requested a second withdrawal, it was automatically rejected by the platform because his balance was insufficient to process the amount due to the open positions of the complainant at that time.

His family complained to the Office of the Fais Ombud, requesting all his capital to be refunded.

However, the office of the ombud said the financial services provider (FSP) responded to the complaint and provided all the signed documents and, based on the evidence provided, the losses were purely due to the complainant’s online trading transactions.

    “The complainant subscribed to the site directly and there was no evidence of any financial advice involved,” it said.

“Furthermore, in terms of Rule 4 (f) of the Rules on Proceedings of the Office of the Ombud for Financial Services Providers, this Office cannot investigate a complaint that relates to the investment performance of a financial product, unless such performance was guaranteed expressly or implicitly,” it said.

The ombud was unable to assist the complainant.

Fais Ombud Advocate John Simpson said complaints to his office about foreign exchange and online day trading are not that prevalent but one or two cases had come across his desk recently, and it was decided to warn people about the risks involved.

Simpson said online day trading sees consumers being given online access to some form of a trading platform where they can deposit money into an account and trade on a daily basis.

He said those offering these platforms are required to be registered with the Financial Services Conduct Authority (FSCA), and the complaints his office received did involve entities or people who are registered with FSCA.

‘No advice of any kind’

Simpson said that from the complaints that had been lodged with his office and the two cases that had come across his desk, there is “no intervention and no financial advice provided of any kind” to the consumer or investor.

He said this meant there is no intervention the Office of the Fais Ombud can offer complainants based on the general code of conduct for authorised FSPs in the Financial Advisory and Intermediary Services Act.

“That is the danger of it. The person who trades on the platform [does] not have any idea what they are doing.

“You need serious expertise to understand how it works and what you should be doing.

    “From our point of view, what these people are doing is trading without any expert knowledge. That is, in our minds, very concerning,” said Simpson.

He stressed that consumers should never invest in anything they do not understand.

‘Looks easy’

Simpson said online foreign exchange and online day trading “looks easy” and people are aware that banks are offering their clients trading platforms where they can deposit money and on a daily basis buy and sell shares.

“You can do that directly without any intervention whatsoever.

“But are people aware of the risk and the expertise required to do this?

“We want consumers to ask themselves if they have the expertise to do this,” he said.

Simpson added that traditionally the entities providing these trading platforms charge consumers a subscription fee for access to the trading platform.

Consumers are also changed a fee for every transaction, which is a percentage of the value of each transaction.

He said traditionally this is how these entities and banks would make income from the trading platforms.

Be wary of ‘encouragement’

The Office of the Fais Ombud has warned consumers to be wary of representatives who contact them about these types of investments and encourage them to complete an online application without conducting a needs analysis and completing a Record of Advice, which details all the material disclosures made about the risks involved.

“Besides the serious risk involved, you need to make sure that you are dealing with a regulated forex broker who has a licence issued by the FSCA.

“This Office has seen several complaints where complainants are lured by the promise of extravagant returns from individuals and entities that promote themselves solely on social media platforms but are not licensed to provide financial services by the FSCA.

“The office is generally unable to assist if it is not a licensed and regulated entity,” it said.

“Be very wary of anyone who promises you a forex or day trading investment with astronomical investment returns and an undertaking of zero risk of losing your capital.”

The Office of the Fais Ombud said that if consumers believe they have been financially prejudiced because of the financial service rendered to them in respect of a regulated financial product, they should lodge a complaint in the office’s complaints portal. – Moneyweb


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